CHICAGO | The city of Chicago and two major airlines have reached a nearly $1.2 billion agreement that resolves many, though not all, long-standing disagreements over the further expansion of O'Hare International Airport, city and federal authorities announced Monday.

That means the construction of an additional runway can begin soon at O'Hare, one of the world’s largest airports and a vital U.S. air-traffic hub, though questions about timing and the pace of other planned work still must be ironed out.

“Making improvements to O'Hare will not only reduce flight delays and improve service for air passengers across America, it will ensure one of our busiest airports continues to thrive economically in the future,” Transportation Secretary Ray LaHood said in statement.

United and American had filed a lawsuit in January accusing Chicago of violating a lease agreement giving airlines authority to approve expenditures for capital projects. Chicago Mayor Richard Daley countered that the airlines reneged on a 2001 promise to help see through the overhaul of O'Hare — which is expected to have a final price tag of around $15 billion.

Monday’s statement didn’t break down just how much of the expansion bill each airline had agreed to pay or just where the money would come from. It also wasn’t immediately clear whether the deal put the brakes on the airlines’ litigation.

But American Airlines CEO Gerard Arpey hailed the agreement in the same statement, saying it takes into account the hard economic realities faced by carriers.

The sides, he said, “have crafted a plan that recognizes the turbulent conditions of our industry and allows us to continue a dialogue with the city over the best timing and pacing of construction going forward.”

The expansion of O'Hare is a signature project from Mr. Daley’s 22 years as mayor. And Mr. Daley, who did not run for another term, has scrambled to ensure one of his favorite projects doesn’t grind to a halt as he prepares to leave office this spring. In February, Mr. Daley met wary airline executives at a Washington gathering brokered by Mr. LaHood. But it ended without a deal.

Mayor-elect Rahm Emanuel has supported O’Hare expansion, and he welcomed word of a deal on Monday.

“Today’s agreement is a victory for the economic future of our city, our state, and our region,” Mr. Emanuel said in a statement shortly after the deal was announced.

City officials have argued that finishing a second phase of expansion, which was also supposed to include a terminal, will help reduce delays in Chicago and throughout the U.S. air-transport system.

The first phase of the project culminated with the completion of a new runway and a control tower in 2008. A plane carrying Mr. Daley and other VIPs was the first to officially touch down on the concrete as part of runway-opening ceremonies.

Airlines, however, balked at footing most of the bill for more upgrades, saying they will benefit little. Mr. Daley had responded that the airlines were being short-sighted. At one point early this year, he even suggested that the airlines have been biding their time until he leaves office.